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We think intelligent long term investing is the way to go. But that doesn’t mean long term investors can avoid big losses. For example, after five long years the Husky Energy Inc. (TSE:HSE) share price is a whole 63% lower. That is extremely sub-optimal, to say the least. And we doubt long term believers are the only worried holders, since the stock price has declined 39% over the last twelve months. It’s down 2.1% in the last seven days.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Husky Energy became profitable within the last five years. Most would consider that to be a good thing, so it’s counter-intuitive to see the share price declining. Other metrics may better explain the share price move.
The most recent dividend was actually lower than it was in the past, so that may have sent the share price lower. The revenue decline of around 2.7% would not have helped the stock price. So the the weak dividend and revenue data could well help explain the soft share price.
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Husky Energy in this interactive graph of future profit estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Husky Energy the TSR over the last 5 years was -59%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Husky Energy shareholders are down 37% for the year (even including dividends), but the market itself is up 1.0%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 16% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Husky Energy is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.